August 25, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Cash Flow vs Asset-based Lending - What’s the Difference?

Securing external funds is often necessary for ongoing operations and expansion, with short-term financial support essential to navigate challenges and achieve growth. 

Cash-flow and asset-based loans offer different approaches. 

One based on projected inflows and the other on collateral, requiring careful consideration to ensure the right fit for financial stability, growth potential, and success.

Below, we delve into a deeper understanding of their disparities, illustrated with examples to help you choose the right one.

Cash Flow vs Asset-based Lending - 4 Key Differences

Cash flow and asset-based lending are two distinct types of business financing catering to different financial needs and situations.

Here's a breakdown of the key differences between the two:

1. Cash Flow vs Asset-based Lending – Lending Focus

1. Cash Flow Lending

Cash flow loan considers the borrower's capacity to produce enough cash flow to meet their debt obligations.

Lenders assess the borrower's historical and projected cash flows, financial statements, and income statements to determine whether the borrower can repay the loan.


Imagine you own a software company that is experiencing rapid growth.

Naturally, you want to expand the product offerings and hire more developers. 

However, your current cash reserves are insufficient to fund these expansion plans.

In this case, you could seek cash flow-based lending.

2. Asset-Based Lending

Conversely, asset-based lending centers around the borrower's collateral.

To determine the loan amount, the lender evaluates the value of the borrower's assets, such as accounts receivable, inventory, equipment, and real estate.

The emphasis is on the value of the assets that can be used as collateral rather than the borrower's cash flow.


Let's say you have a manufacturing company that produces specialized machinery.

This company has a seasonal business cycle and experiences fluctuations in cash flow throughout the year.

So, you need financing to purchase raw materials for the upcoming busy season.

Since your cash flow is inconsistent, traditional cash flow lending might be challenging.

Instead, the better choice is to opt for asset-based lending, allowing you to secure a loan based on the value of these assets.

Pro Tip From Myos

With Stock finance, you can use your warehouse stock as collateral.

You can get between €10.000-2.500.000 without giving any equity or a personal guarantee.


A flexible repayment schedule without additional costs allows you to repay the loan whenever it suits you, aligning with your cash flow cycle.

The application process is pretty straightforward and completely online. 

After you request a loan and submit the product details, you will receive an offer within 72 hours.


And most importantly, you can use these funds for whatever your priority is – without needing a business plan, extensive paperwork, or even a credit check.

2. Cash Flow vs Asset-based Lending – Collateral

1. Cash Flow Lending

In cash flow lending, the borrower's collateral is often the future cash flows generated by the business. The lender assesses the borrower's ability to generate steady cash flows and service the debt based on the cash flow's stability and consistency.


Let's continue with the software company example.

Since the value is primarily tied to intellectual property and the ability to innovate, you might find it challenging to offer tangible assets as collateral.

In cash flow lending, the company's future revenue streams and projected profits become the main basis for the lender's decision.

2. Asset-Based Lending

Asset-based lending relies on physical assets as collateral.

These assets, such as inventory, accounts receivable, machinery, office supplies, and real estate, are typically more tangible. If you default, the lender can seize and sell the collateral to recover their funds.


Now, let's imagine you own a retail business with a chain of electronics stores. 

You have a substantial inventory of electronics and appliances.

In this case, you can use the inventory as collateral for an asset-based loan.

Pro Tip From Myos

Initiate a loan request by sharing the ASINs/GTINs of your desired products along with sales evidence. Our AI will evaluate the products and deliver an offer within 72 hours.

Upon accepting the offer, you can tap into supplementary services via our partners, including foreign currency hedging, ecommerce guidance, or warehousing.

Upon agreement, payments can be directed to you or your manufacturer directly.


To ensure your products are suitable for use as collateral, you must comply with the following:

  • Your products have been sold in ecommerce for at least 50 days (e.g., on Amazon, eBay, online shop, etc.).
  • Your products have a shelf life and life cycle of at least 1 year.
  • Your products will be sold for at least 5€.
  • Your products are ready for sale.
  • The following products are excluded: Weapons, ammunition, branded watches, etc.).

3. Cash Flow vs Asset-based Lending – Risk Assessment

1. Cash Flow Lending

Cash flow lending is generally considered lower risk for lenders because the emphasis is on the borrower's ability to generate steady cash flows.

However, it may be riskier for borrowers if their cash flow projections are not accurate or if there are unexpected disruptions to their business operations.


Suppose a restaurant business seeks cash flow-based lending to open a new location.

The lender reviews the restaurant's historical financial data, including cash flow statements, to assess the viability of the new venture.

The restaurant's ability to consistently generate profits and cover expenses is critical for loan approval.

The risk here is that if the new location doesn't perform as expected, the restaurant might struggle to meet its loan obligations.

2. Asset-Based Lending

Asset-based lending can be riskier for lenders because the value of the collateral can fluctuate, and there might be challenges in liquidating the collateral to recover the loan amount.

For borrowers, asset-based lending might be a way to access financing even if their cash flows are temporarily disrupted.


For instance, you own a wedding dress rental company.

You have a collection of gowns and equipment worth a significant amount.

But, your company is experiencing a temporary slowdown in business due to a downturn in the wedding industry.

Despite the dip in cash flow, you can use your valuable equipment as collateral for an asset-based loan to cover operational costs until the industry picks up again.

Pro Tip From Myos

Myos will have a portion of your inventory designated as collateral, enabling you to secure your financing. 

This increased liquidity will allow you to maintain flexibility through the infusion of additional working capital.


💡 Enjoy repayment flexibility customized to your requirements.

With loan terms extending up to 12 months, you can settle the loan ahead of schedule at no additional expenses, clear the total amount on the final day, or adopt a regular payment approach.

💡 Interest is computed based on the remaining balance, allowing you to manage monthly expenses through repayments, all without a personal guarantee.

4. Cash Flow vs Asset-based Lending – Funds Use Cases

1. Cash Flow Lending

This type of lending is often used for financing growth initiatives, working capital needs, acquisitions, or other investments that rely on a company's ability to generate future cash flows.


A tech startup has developed a cutting-edge software application and has gained significant interest from potential customers. 

They need to invest in marketing, hiring, and infrastructure to scale up quickly and capture the market.

They apply for a cash flow-based loan to support their expansion plans, leveraging the potential revenue growth the new customers will bring.

2. Asset-Based Lending

Asset-based lending is commonly used by businesses with valuable physical assets, such as manufacturers and distributors, to secure short-term working capital for inventory purchases, accounts receivable financing, or other operational needs.


Let's explore another example – LuxeWear, an upscale fashion ecommerce store known for its curated collection of high-end clothing and accessories.

With an impressive annual revenue of €2,000,000, they've become a go-to destination for individuals seeking exclusive, premium fashion items.

In their pursuit of continuous growth, LuxeWear launched a targeted influencer marketing campaign that gained widespread attention, leading to a surge in customer interest and orders. To effectively meet this increased demand, LuxeWear identified the need for additional working capital of €300,000.

After carefully considering its financing options, LuxeWear decided to explore asset-based lending, leveraging the value of its existing high-end inventory to secure the necessary funds for its expansion efforts.

Pro Tip From Myos

Unlike other financial providers, financial solutions from Myos don't restrict how to use your funds.

For example, this capital infusion serves diverse purposes:

🛒 Scaling Inventory: Adapt swiftly to market changes and customer demand surges by bolstering inventory during peak seasons. Additional capital ensures you won't face cash shortages when scaling.

✈️ Managing Shipping Costs: Shipping and logistics expenses can burden online businesses. Enhanced working capital empowers you to manage these costs seamlessly, sustaining streamlined operations.

📱 Empowering Marketing Initiatives: Effective marketing broadens your reach and drives sales. Increased working capital facilitates investments in impactful marketing campaigns that resonate with your audience and attract more traffic.

🛍️ Product Expansion: Developing and launching new products necessitates funds. Extra working capital provides the resources to diversify your offerings, appealing to new customers and retaining existing ones.

📦 Facility Enhancements: Warehouse improvements might become essential as your business expands. Working capital funds upgrades, guaranteeing your capacity to accommodate growing demand.

📌 As per the previous example, these funds could be directed towards restocking their inventory with the latest luxury fashion releases, enhancing their online shopping experience, and potentially expanding into new market segments.

                                           Side By Side Comparison Table



In short, cash-flow and asset-based lending differ in their criteria for lending decisions – one relies on cash flow potential, while the other uses asset value as collateral.

To choose the ideal funding solution, consider the following factors:

  • Prioritize lenders with swift approval and funding processes.
  • Examine origination fees, prepayment penalties, and associated expenses. 
  • Assess the lender's reputation, customer feedback, and support options.
  • Ensure the loan resonates with your business objectives and intended usage.

However, you may prefer asset-based lending if you have valuable collateral and uncertain or fluctuating cash flows.

What Makes Myos Unique?

If you opt for any financing options from Myos, you can enjoy the following benefits:

👍 Inclusive Reach: Myos welcomes businesses as young as 2 months, catering to a wide range of company sizes.

👍 Risk-Free Support: Myos' loans require no personal risk or guarantees, providing borrowers with a worry-free financing experience.

👍 Strategic Timeline: A funding cap of 12 months offers a concise period for strategic planning and seamless execution.

👍 Effortless Application: The streamlined online application ensures funding within 72 hours, simplifying your capital access.

👍 Early Repayment Freedom: Myos's approach avoids early repayment penalties; no fixed lump-sum payments, just a monthly fee based on the remaining capital.

👍 Customized Payments: Your product scoring determines the fee percentage, with early repayment reducing your total payment proportionally. This adaptable structure ensures efficient funding management minus concerns about additional costs upon early settlement.

So, sign up and get a free, non-binding offer today!

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